Prominent investors among Valeant losers

Oct. 21, 2015

Updated 5:33 p.m.

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Investor Bill Ackman felt the pain of Valeant’s stock loss Wednesday. Ackman said in an e-mail that he hasn’t sold any of his Valeant holding and instead added 2 million shares to his stake. , PAWEL DWULIT ASSOCIATED PRESS

Investor Bill Ackman felt the pain of Valeant’s stock loss Wednesday. Ackman said in an e-mail that he hasn’t sold any of his Valeant holding and instead added 2 million shares to his stake. , PAWEL DWULIT ASSOCIATED PRESS

A long list of prominent investors, including hedge fund star Bill Ackman and the managers of the Sequoia Fund, made billions of dollars in paper gains as stock of Valeant Pharmaceuticals International soared over the past five years.

Now they’re watching those profits melt away.

Valeant plummeted as much 40 percent on Wednesday after a short seller published a report accusing the company of an Enron-like strategy of recording fake sales by using phony customers. The stock pared losses, closing down 19 percent at $118.61, after Valeant disputed the report as “erroneous.”

Valeant has declined 55 percent from an intraday peak of $263.81 on Aug. 6, according to data compiled by Bloomberg. The slump from that high point translates into a paper loss of as much as $4.9 billion for Ruane, Cunniff & Goldfarb, which runs the $8.1 billion Sequoia Fund and was the biggest investor in the stock as of June 30. Ackman’s Pershing Square Capital Management lost about $2.8 billion. Those calculations assume the firms haven’t changed their holdings since the end of the second quarter.

Ackman said in an email that he hasn’t sold any of his Valeant holding and instead added 2 million shares to his stake Wednesday.

Valeant has been a popular stock among hedge fund managers. Thirty-two hedge funds counted Valeant among their top 10 holdings at the end of the second quarter, with the stock accounting for 10 percent of the portfolios of those funds on average, according to an Aug. 19 report by Goldman Sachs Group Inc. In the five years ended June 30, Valeant shares rose more than 11-fold.

Recently, Valeant has been at the forefront of an intensifying debate over price increases for older drugs in the U.S. Citron Research said Wednesday that Valeant is using a specialty pharmacy called Philidor RX Services to store inventory and record those transactions as sales. The firm, founded by Andrew Left, has been a dogged critic of Valeant’s business model, denouncing its reliance on acquiring drugmakers and then jacking up the prices of their products, which have been on the market for years.

Valeant, in response to the report, defended its relationship with the specialty pharmacies that distribute its drugs and called the comparison to Enron Corp. unwarranted, saying sales are only recorded when drugs are sent to patients.

Hedge fund manager John Paulson’s firm, Paulson & Co., owned 9 million Valeant shares as of June 30, translating into a decline from the peak of $1.3 billion.

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